A New Era of Fundraising for Start-Ups, Crowdfunding now Legal and Web-enabled

March 27, 2012

Readers of this blog know that I advocated for the passage of the JOBS Act (Jumpstart Our Business Startups) in the USA. This is H.R. 3606.

The good news is that the bill has passed the US Senate. It was amended to provide a bit more disclosure and safety for investors, but it’s done, and this is a very good thing. Here’s a nice summary of what’s happened from the New York Times. It still needs signed by President Obama, but he will, he was behind this effort. Can the right please refrain now from calling him a socialist? This is possibly the most “free market” law in recent memory. This is a very pro-business bill and it shows Obama to be the moderate he is, going against members of his own party to help pass it. The Washington Post has a good take on this aspect of things.

Putting politics aside, the passage of the law means that small business people and social entrepreneurs will be able to use the web to raise money from large groups of small investors.

It’s really just that simple – and that profound. This was not permissible under US law before. Now, the power of the internet and its broad reach, is leveraged to help match people with ideas to the funds they need to make them happen. Because there will typically be many small investors, risk is spread over many people. These investors won’t have the same goals as venture capitalists and will likely be more patient and in for the longer haul. This bodes well not only for traditional businesses, but also for social innovation organizations, click the link to read a great perspective piece by Tom Szaky, another from the New York Times.

Really, this means that average people now have the freedom to invest in what they wish. Call it democratization of the fund raising market, call it free enterprise, call it access to capital, call it what you will, but it is a trend. It follows the micro-finance revolution for very small enterprises; this bill addresses larger small businesses — the ones that employ others. The only market that still needs addressed is fundraising for large scale enterprises. That is where this trend will go.

This is a whole new ball game, a whole new era for entrepreneurs of all stripes.

It’s not a panacea. Many of these ideas and small businesses will fail. There will probably be people who take advantage of this law to rip people off, so, be careful out there. It also isn’t going to allow crowdfunding for start-ups with big capital requirements, which is a flaw to this bill. But the bottom line is a large number of people will get small businesses off the ground. And that means jobs, innovation, and renewal for the economy.

For once we say to the US Congress, both the House and The Senate, well done. Thanks for working together for all Americans. It will be interesting to see how many other governments around the globe follow suit.